A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE INSURANCE ADMINISTRATION

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3 A BUSINESS OWNERS GUIDE TO COMMERCIAL INSURANCE INSURANCE ADMINISTRATION

4 TABLE OF CONTENTS Who We Are... 1 How We Help Consumers... 1 Resources for Consumers... 2 Introduction to Commercial Insurance... 3 Insurance for Your Business... 4 Commercial Auto Insurance... 4 Property and Liability Insurance... 8 Property Insurance... 8 Business Interruption/Continuation Insurance... 9 What to Do After a Property Loss Liability Insurance Business Owners Policy: A Package Solution Home-Based Business Insurance Workers Compensation Insurance Other Types of Coverage to Consider for Your Business Flood Insurance Earthquake Insurance Surety Bonds Insurance for Your Employees Health Insurance for Small Businesses Group Disability Insurance Group Life Insurance Key Person Life Insurance Contact Information for Maryland Businesses Maryland Insurance Administration

5 WHO WE ARE The Maryland Insurance Administration (MIA), founded as the Maryland Insurance Division in 1872, is an independent state agency located in downtown Baltimore. This agency regulates Maryland s $26 billion insurance industry and makes certain that insurance companies, health plans and producers (agents and brokers) comply with Maryland s insurance laws. The MIA also licenses more than 110,000 producers and approximately 1,500 insurance companies, regulates insurance rates and forms, monitors insurer solvency, investigates consumer complaints and travels across the state to provide consumers with educational materials on insurance. HOW WE HELP CONSUMERS The MIA can educate you about your rights and investigate written allegations that your insurance carrier, insurance producer (agent or broker), or another entity engaged in the business of insurance has violated state law. Violations may include: denying authorization for medically necessary services; improperly denying or delaying payment of all or portions of a claim; improperly terminating your insurance policy; raising your insurance premiums without the proper notice or in excess of what the law allows; making false statements to you in connection with the sale of insurance or the processing of insurance claims; or overcharging you for services, including premium finance charges. We provide assistance to consumers, businesses, health care providers (including doctors and hospitals) and producers (agents and brokers) in all areas of insurance. This includes life, health, disability, workers compensation, automobile, homeowners, and property insurance. The MIA does not have jurisdiction over workers compensation claims. Those complaints should be directed to the Workers Compensation Commission at Maryland Insurance Administration

6 The MIA provides assistance by: answering general insurance questions and providing educational information about different types of insurance coverages. We offer guides to help you compare rates among insurance companies writing automobile and homeowners insurance, medical professional liability insurance, health coverage for small employers, as well as Medicare supplement insurance policies. Some include questions you may wish to ask when shopping for insurance. suggesting actions or processes you may take to help resolve your insurance problem; forwarding a copy of your complaint to the insurance company, if appropriate; obtaining written and verbal information or explanations from the insurance company or its representatives on your behalf. investigating a company s action(s) to determine compliance with state law, regulations and policy contracts; taking corrective action against a company if it violated a state law, regulation or policy that the MIA enforces. RESOURCES FOR CONSUMERS The MIA produces consumer guides, rate comparisons and frequently asked questions (FAQs) related to various types of insurance. Here are some of the publications we offer to consumers: A Consumer Guide to Homeowners Insurance; A Consumer Guide to Auto Insurance; A Consumer Guide to Life Insurance; Annual Premiums for Medicare Supplement Policies; and An Insurance Preparedness Guide for Natural Disasters. You may access this information in several ways: Download from the MIA s website, then under the For Consumers tab, click on, Publications and scroll down the page to locate the brochure you want. Call or write to us, and we will mail copies to you. Visit our booth at community events throughout the state. Find these printed materials at various state and local agencies. 2 Maryland Insurance Administration

7 INTRODUCTION TO COMMERCIAL INSURANCE Operating a business is challenging enough without having to worry about suffering a significant financial loss due to unforeseen and unplanned circumstances. Commercial insurance can protect your business from some of the more common losses experienced by business owners, such as property damage, business interruption, theft, liability, and employee injury. Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a loss or recovering with minimal business interruption and financial impairment to your company s operations. HOW DO I PURCHASE COMMERCIAL INSURANCE? When looking to purchase commercial insurance, the best place to start is to identify a licensed producer (agent or broker). A producer can help you decide what types of coverages you need, which policy you should purchase, how to shop for the best policy and coverage, and when your coverages could be more cost-effective. A trusted agent or broker can be a valuable asset to your business someone who understands your business, not just the coverage being sold. Producers should understand the insurance policies, the companies they represent, how the company handles and pays claims, and the rating and audit provisions applicable to commercial policies. Friends, associates, attorneys, and financial consultants may be able to refer you to a producer. The MIA can tell you whether the producer is licensed and in good standing. WHAT KIND OF INSURANCE DO I NEED TO PURCHASE FOR MY BUSINESS? Many kinds of insurance are available to businesses. Which one you should purchase depends upon the individual risk characteristics of your business, and the type(s) of loss you want to insure against. A licensed producer will be able to present you with different policy and coverage options. It is important to understand that a producer s proposal is just that a proposal. When all is said and done, it is your choice. Make an informed decision about which insurance best fits your business and offers you the desired level of protection. The relationship you build with your producer is extremely valuable in this critical decision-making process. Experienced, licensed producers deal with lots of businesses similar to yours and can offer you the benefit of their knowledge to ensure that Maryland Insurance Administration

8 you do not have gaps in coverage. Commercial insurance can be complicated, so be sure to discuss any terms, conditions, or concepts you are not familiar with or do not fully understand with your producer. One of the services producers provide is their ability to answer your questions and help you understand the insurance you are considering. While your business may not need all types of commercial coverages, it is a good idea to have basic knowledge of the types of insurance coverages available. As your business changes and expands, you should reassess your coverages and determine what additional coverages you may wish to purchase. This is particularly true if your business grows and new risk exposures arise. INSURANCE FOR YOUR BUSINESS COMMERCIAL AUTO INSURANCE All motorized vehicles registered in Maryland, whether used for personal or business purposes, are required to carry automobile liability insurance. When a policy is canceled or nonrenewed, an insurer is legally required to notify the Maryland Vehicle Administration (MVA) of the policy s termination. Automobile liability insurance coverage includes payment for medical expenses and damages sustained by other injured people (i.e. bodily injury) and damages to the property of other individuals as a result of a motor vehicle accident caused by the insured s negligence. The minimum amount of liability coverage required by Maryland law is: $30,000 for bodily injury per person; $60,000 bodily injury per accident; and $15,000 property damage. Maryland has two other statutorily required automobile coverages: Uninsured/Underinsured Motorist and Personal Injury Protection (PIP). The minimum amount of Uninsured Motorist Coverage required by Maryland law is: $30,000 for bodily injury per person; $60,000 bodily injury per accident; and $15,000 property damage. 4 Maryland Insurance Administration

9 The limits for bodily injury per person and per accident also provide underinsured motorist coverage. However, as a business, you may wish to purchase automobile insurance above the minimum limits. You should discuss this in greater detail with your agent or broker. Maryland law requires consumers to purchase a minimum of $2,500 in Personal Injury Protection (PIP) coverage. However, you may be able to waive PIP coverage for certain individuals. This is known as Limited PIP, which will result in a reduction of your premium. You should consult your producer for a thorough explanation of PIP and the options available. The MVA conducts a random sample of registered vehicles to ensure that vehicle owners have purchased the minimum required insurance coverage and that the insurance on the vehicle is maintained. If the MVA cannot verify insurance coverage, it will request the vehicle owner to provide a Financial Responsibility Filing (FR-19) to verify that adequate liability insurance has been in place since the vehicle was purchased. The policyholder is entitled to obtain an FR-19 from their insurer at no charge. If liability insurance cannot be verified, the MVA will fine the vehicle owner for each day the vehicle was uninsured. A fine of $150 is levied if the vehicle is uninsured for 1 day to 30 days; there is an additional charge of $7 per day for each day after the 30th day that the vehicle is uninsured (up to a maximum of $2,500 per year). If it is established that your vehicle was uninsured for a period of time, this lapse in coverage may result in an increase in your insurance premium. In addition, you may find that some insurers will not insure you or your vehicle if there was a lapse in coverage while you owned the vehicle. Statistics show those who drive without insurance present a greater risk for future losses than those drivers who maintain continuous insurance coverage. DO YOU NEED A COMMERCIAL OR PERSONAL POLICY? While personal and commercial auto insurance policies provide similar types of coverage, there are important distinctions. Commercial auto insurance policies typically have higher liability limits than a personal automobile liability insurance policy. For example, a typical commercial auto policy may have a liability limit of $1 million. A commercial auto liability insurance policy also may have provisions that cover rented and other non-owned vehicles, such as employee-owned vehicles that are driven for company business. Maryland Insurance Administration

10 Several factors should be considered when determining whether a personal or commercial policy is appropriate. These include: Who owns or leases the vehicle? You or the business as an entity? Who drives the vehicle? You or your employees? How is the vehicle principally used? For transporting people, delivering packages or carrying hazardous materials? Do you allow your employees to take the vehicle home, or is its use restricted to work hours? Discuss these issues with a licensed insurance producer who is knowledgeable about commercial and personal auto insurance. Also, consider purchasing collision and comprehensive (coverage for losses other than collision) coverage to protect your business from losses and damage to your vehicle. Banks and other financial institutions with a security interest in your vehicle will require both comprehensive and collision coverage to protect their interest in the vehicle. WHAT FACTORS AFFECT THE COST OF YOUR INSURANCE PREMIUMS? Type of vehicle. Premiums are linked to the type of vehicle you drive. So if you re buying or leasing a new car or truck, check the insurance rates before you make your final choice. Safety devices. If you re buying or leasing a new vehicle, consider getting one with anti-lock brakes, front and side airbags, automatic seat belts and daytime running lights; these safety devices may result in a lower premium. Anti-theft devices. Alarm systems or tracking systems that locate your vehicle if stolen may reduce your premium. Garage location. Where you garage your vehicle may impact premiums. If you have access to an indoor garage or locked parking lot places that decrease the likelihood of theft you may qualify for a lower premium. Geographic location. The geographic region in which your business operates may affect your premium. For example, areas prone to extreme weather hail, wind storms, hurricanes, etc. higher traffic patterns or higher risk of theft may have higher insurance rates. Driving and claims history. Your personal driving record and the number of claims you have previously filed may affect your ability to obtain insurance in the private market and may impact the amount of your premium. Amount of coverage. The coverage limits you choose may affect the premium; the higher the coverage amount, the higher your premium. If you re using your vehicle to conduct business, you may want to consider a higher liability limit so that the coverage will be sufficient to protect both your business and personal assets if you are sued due to an accident. 6 Maryland Insurance Administration

11 Amount of deductible. The cost of your insurance is directly linked to the amount of your deductible. The deductible is the amount of money that you agree to pay for a loss or claim before your insurer pays any monies for the remaining amount due to cover the cost of the claim. For example, if your vehicle incurred $1,000 of damage in an accident and your deductible is $250, you would pay the first $250 and your insurer would pay the remaining $750. The higher your deductible, the lower your premium. Insurance history. As discussed above, failing to maintain continuous automobile liability insurance coverage as required by law can result in a higher premium when new coverage is sought. An insurer may also refuse to provide coverage if you have had a lapse in coverage. TIPS AND CONSIDERATIONS CONCERNING COMMERCIAL AUTO INSURANCE If your business owns or leases a vehicle, make sure the name of the business is listed on the policy declaration page as the insured. If you are relying on either a personal auto or personal umbrella liability insurance policy to provide you with protection for your company s use of vehicles, closely review the policy language. Many personal insurance policies exclude business-related liability claims. If your employees operate a company car, make sure they have good driving records and are trained properly before you entrust your company vehicle to them. Failure to do so may expose your company to additional liability. The risk presented by your employees may exceed the company s underwriting guidelines and prevent you from getting insurance with the company you desire. Consider increasing insurance on your business vehicle(s) to cover permanently attached items, such as a generator or a storage unit. If you cannot obtain commercial auto insurance in the private market, Maryland business owners may obtain auto liability coverage from the Maryland Automobile Insurance Fund (MAIF). For more information, call or visit Maryland Insurance Administration

12 PROPERTY AND LIABILITY INSURANCE Property and liability insurance provides businesses with important protection against loss or damage to property and equipment, including computers. In addition, it protects the business from claims made by others for damages or injuries to customers, clients or the property of others. PROPERTY INSURANCE Property insurance protects small business owners from losses due to damage to their business property, including the business physical space or equipment. For insurance purposes, business property includes the physical building in which the business resides, assuming the business owns the building, as well as the property owned by the business that is located within the building and other assets of the business. While the terms of coverage, and the specific property covered, depends upon the specific language of the policy you obtain, the following types of property may be considered business property: the building or physical plant where the business is located; inventory; furniture, equipment and supplies; machinery; computers and other data processing equipment; valuable papers, books and documents; antiques and artwork; televisions, VCRs, DVD players, and satellite dishes; signs, fences and outdoor property not attached to a building; or intangible items such as trademarks, copyrights and other intellectual property. There are three types of property insurance plans: Basic form, which provides coverage for losses resulting from a fire, lightning, windstorm, hail and explosion, plus the cost of removing property to protect it from further damage. Broad form, which includes the coverages described above, plus extended coverage for other types of perils, such as a roof collapse due to snow or ice, or broken windows caused by a riot and civil commotion. 8 Maryland Insurance Administration

13 Special form, which includes the basic and broad coverages, as well as all direct physical losses except those conditions specifically excluded in the policy. With property insurance, you can purchase either actual cash value (ACV) or replacement cost (RC) coverage. ACV insurance reimburses you for the value of lost, damaged or stolen goods after depreciation is taken into consideration. RC insurance reimburses you the amount it would take to replace, rebuild or repair damages with materials of similar kind and quality, without any deduction for depreciation. BUSINESS INTERRUPTION/ CONTINUATION INSURANCE Business interruption insurance, also known as business continuation insurance, provides coverage for expenses associated with running a business, such as payroll and utility bills, when the business is unable to operate for an extended period of time because of a fire, or other type of loss as specified in the policy. While the policy will specify how such expenses are to be determined and how many days coverage will be provided, the amount of coverage is typically based on the company s financial records. Business interruption/continuation coverage can be added to a property insurance policy or purchased as part of a package insurance product. Even if you purchase business interruption coverage, you should be aware that this type of coverage typically is not triggered until a specified period of time has passed following a covered loss that results in the interruption of the business. That time period will be set forth in your policy. TIPS AND CONSIDERATIONS CONCERNING PROPERTY INSURANCE Know the current value of your property. For any type of property insurance, it is important to have your property values assessed both before you buy the policy and periodically thereafter to ensure that your coverage amounts are sufficient to protect your business. Keep copies of receipts for equipment, furniture and other valuable items in case your business sustains a loss or damage, or the business premises are destroyed. Store hard copies of these receipts and/or digital photos of the property in another location, such as in a bank safe deposit box or on a website hosted by a photo service, so you can access them following a loss. Get a professional appraisal for high-value and specialty items. Before you purchase property insurance, hire a reputable appraiser to determine the value of high-value and specialty items, such as antiques and artwork. These items should be insured separately. It is important that you specifically tell your producer about these specialty items so that the correct coverage will be provided. These types of items usually are covered for an agreed-upon amount (value of item is pre-determined) before a policy is written and a loss has occurred. Maryland Insurance Administration

14 Keep your insurance policy at an offsite location so that, in the event of a loss, you will be able to retrieve it and review your coverages. Obtain coverage even if you lease your business facility or property, or business equipment. Do not rely on the owner to provide insurance for you. If you lease your building or offices, or lease business equipment, you should carefully read those contracts to determine whether you need to obtain separate coverage and the minimum amount of coverage required. When you purchase property insurance, read your policy to see what is and is not covered. You may need to obtain additional coverage to cover property or equipment not otherwise covered, so you will be protected fully if something happens to your property/equipment or if someone sues you for damages caused by you or your employee. Contact your insurance producer if you are unsure whether something is covered or not, and to arrange for coverage of property not otherwise insured. For example, since flood and sewer backup are not typically part of a commercial property policy, you may want to obtain a separate policy or endorsement to cover this type of damage. A property insurance policy generally includes a statement specifying the limit of liability. The limit of liability is the maximum amount an insurer will pay for a covered loss. The policyholder is usually liable for any amount above that limit. Be sure your limit of liability is sufficient to protect you and your business in the event of a loss or claim. If you have difficulty insuring your building because of its location, the Joint Insurance Association (JIA) may be able to assist you. The JIA is a private organization comprised of private insurance carriers that operate in Maryland and is funded by premiums from property and casualty policies sold in the state. The JIA offers insurance for property located in Maryland to businesses that are unable to secure coverage in the private marketplace. Premiums may be higher than insurance obtained through a private insurer, so applicants are encouraged to seek coverage from regular insurance companies first. If you are interested in obtaining insurance through JIA, contact a licensed property/casualty insurance producer, or contact JIA at , , or The level of coverage required for business interruption coverage is directly related to the type and size of business you operate. To determine the necessary amount of coverage, you should consider the size of the business, whether it would be possible to continue operations offsite if necessary, and monthly business expenses, including payroll and benefit expenses, as well as overhead, supplies and other regular business expenses. 10 Maryland Insurance Administration

15 WHAT TO DO AFTER A PROPERTY LOSS Immediately contact your insurance company or producer after sustaining property or automobile damage. Carefully read your policy, so you understand what coverage is available to you. If you have to relocate temporarily, make sure the insurance company or producer knows your temporary address and telephone number. Take photographs and/or video of the damaged areas. This will help you with your claim and will assist the insurance company in its investigation of your claim. Before you remove any damaged property from the premises, be sure an insurance adjuster or your producer has seen the damage so a damage-and-loss assessment can be prepared. Make only those repairs necessary to prevent any further damage to your business property. This includes covering roofs, walls or windows with plywood, canvas or other waterproof material. Do not make permanent repairs without consulting your producer or company since unauthorized repairs may not be reimbursed. Keep all receipts for emergency repairs and for temporary business expenses. As soon as you are able, prepare a detailed inventory of all damaged or destroyed property. Give one copy to the insurance adjuster and keep one copy for your files. Your list should include a description of the item and quantity (if more than one), date of purchase or approximate age, cost at the time of purchase, and estimated replacement cost today. Include as much information as possible. If you hire a public adjuster, you should understand that your insurance company may or may not agree with that person s estimate of your damage. Your insurance company is not obligated to accept the damages that are claimed by a public adjuster. Be present when your insurance adjuster inspects your property. This will enable you to point out all areas you believe have been damaged. Do not accept an unfair settlement offer. If you cannot reach an agreement, call the insurance company and be prepared to explain why you believe the offer is insufficient or unfair. If you are still not satisfied, contact the Maryland Insurance Administration s Property and Casualty Complaints section at or toll free at , extension If you think the insurance company s estimate is too low, you may wish to obtain an estimate from your own contractor. A contractor may charge a fee for an estimate; but, if that contractor does the repair work, the fee usually will be credited toward the cost of the repairs. If your insurance company denies any part of your claim, be sure to get the denial in writing and keep all the paperwork they send you. Maryland Insurance Administration

16 Avoid shoddy repairs and workmanship by using licensed, reputable contractors. Be sure they secure the appropriate building permits. Beware of contractors requiring a large payment up front or whose bids are amazingly low. Check with the appropriate licensing agency to make certain the contractor you are planning to use for the repairs has a valid license. You should contact your insurance company and claims adjuster any time you find additional damage not previously reported and inspected, or if you have more information concerning the claim. LIABILITY INSURANCE Liability Insurance, also called Commercial General Liability (CGL) insurance, protects your business against the economic loss and expense associated with claims of bodily injury, property damage, injury to one s reputation caused by slander and libel, and also the harm caused by false or misleading advertising. Bodily injury claims include claims for damage that results when someone falls while visiting your business or one of your products falls on the person. It can, depending on the language of the policy, also include coverage for claims of damage that occurs as a result of your business operations. For example, if your business serves food, this may include the cost of medical tests to detect hepatitis because of contamination due to food-handling. Property damage includes property that is physically damaged or lost by your business. Whether a particular loss or expense is covered, will depend on the source of damage and the language of your policy. For example, damage to business inventory may be a covered loss if it is damaged from an accidental fire, but the same damage might not be covered if the inventory is damaged by flood waters and the policy does not provide coverage for floodrelated damage. The scope of coverage available under your policy will depend upon the policy and endorsements you select, so be sure to discuss all of your concerns with your insurance producer and to learn about all of the different types of coverages available for purchase. A CGL policy is advantageous for two reasons. First, the insurer will defend you against any covered claim at no out-of-pocket cost to you. Second, if your business is found responsible, the insurer will pay at least part of, and maybe even all of, the damages owed. The amount the insurer will pay depends upon (1) the amount of damages, and (2) the type of damages sought. When a valid claim is made, the insurer will pay up to the stated maximum. If the claim for damages is greater than the policy maximum, you as the policyholder are liable for the balance. Also, while most CGL insurance policies provide coverage for compensatory and non-compensatory damages, punitive damages are typically not covered. Compensatory damages include expenses incurred by the claimant as a result of the injury, such as the cost of medical services and lost wages from missing work, as well as projected future losses and expenses. Non-compensatory or general damages include non-monetary losses suffered by the 12 Maryland Insurance Administration

17 injured party, such as pain and suffering or mental anguish. Punitive damages are additional monies awarded as a penalty and sanction against the defendant as a form of punishment for its actions. OTHER TYPES OF LIABILITY INSURANCE While a CGL policy provides important coverages, it does not cover all types of risks associated with operating a business. For example, it does not cover injuries to workers that occur in the workplace. Nor does it cover losses incurred as a result of errors by professional advisors, such as a lawyer or an accountant, or a board member. It also does not cover property damage or bodily injury caused by an automobile, even if it was being operated for business purposes. Such losses would be covered by the automobile policy discussed previously. Other types of liability policies are available for purchase to cover these other types of risks. These are listed below: Umbrella Policy. An umbrella liability policy provides extra protection over and above a standard CGL policy. While the terms of coverage are similar to the underlying liability policy, an umbrella policy provides additional coverage on top of the underlying liability policy and will pay, up to its stated limit, when the amount of the claim exceeds the underlying policy limit. Umbrella policy coverage limits typically are within the range of $1 million to $5 million and are appropriate for businesses and business owners who have large assets or may be vulnerable to claims and lawsuits. Employment Practices Liability (EPL) Coverage. This type of policy covers claims related to sexual harassment, race- or gender-based discrimination, wrongful termination, failure to employ or promote, or other employee-related claims. The cost of EPL coverage depends upon the number of employees, the company s history as the subject of such claims in the past, and other risk factors related to the business. A policy with EPL coverage would provide and pay for the legal costs associated with a company s defense of a lawsuit related to employment practices, as well as any damages that may be awarded up to the policy limits. Punitive damages generally are not covered by an EPL policy. However, some companies may allow a business to purchase additional coverage for punitive damage protection, although the cost of the policy will reflect this additional coverage. You should talk to your producer about whether you wish to purchase this coverage for your business and what types of protection you wish to have, coverage for compensatory damages or compensatory and punitive damages. Professional Liability Insurance. Professional liability insurance, or an errors and omissions (E&O) policy or a directors and officers (D&O) policy, provides coverage for damages caused by a professional advisor or a board member that arises out of the negligence, mistake or failure to take appropriate action in performing his or her professional duties or operating the business. The E&O policy would cover damages if, for example, an accountant failed to file Maryland Insurance Administration

18 a tax return on time and the business was assessed a penalty as a result. The D&O policy would cover damages if, for example, a board member failed to perform his legal duties and was sued by a shareholder. While professional liability insurance is available to any type of professional who offers services, including a health care provider, lawyer, or accountant, only the named insured is eligible for such coverage. It is important to update policies when, for example, there is a change in the accountant, in-house counsel, or membership of the board of directors. Malpractice insurance is a specific type of professional liability insurance that protects physicians and other licensed health-care professionals against liability claims associated with bodily injury, medical expenses and property damage, as well as the cost of defending lawsuits related to such claims. As with other liability insurance policies, premiums for professional liability insurance coverage depend upon the type of professional service provided and its level of risk. Workers Compensation Insurance. This type of insurance protects a business and its owner(s) from claims by employees who suffer a work-related injury, illness or disease. Maryland, like all states, requires businesses to carry workers compensation insurance for their employees. Workers compensation insurance typically provides the injured employee with benefits to cover medical expenses, a portion of his/her lost wages, rehabilitation costs if applicable, and permanent partial or permanent total disability. This coverage is not part of your commercial general-liability insurance policy; you will need to purchase a separate policy to obtain this type of coverage. Check with the Maryland Workers Compensation Commission (WCC) or or your producer about the needs of your business. (For more information, see the Workers Compensation section of this brochure.) Crime Insurance. This type of policy protects businesses from theft and malicious damage. Fidelity Bonds. Fidelity bonds protect businesses from monetary and property losses caused by the fraudulent acts of specified individuals, usually its employees. E insurance or Internet Business Insurance. This type of insurance covers web-based businesses for damages caused by computer hackers and viruses. Cyber Liability Insurance. This type of insurance is customized to fit the particular needs of your business. The policy may cover security breaches where sensitive information is either hacked or inadvertently disclosed. For example, the policy may pay for the increased expenses to: 1) provide credit monitoring for consumers in the event of a security breach; 14 Maryland Insurance Administration

19 2) repair or replace business assets damaged as a result of a security breach; or 3) operate the business if the security breach causes an interruption. TIPS AND CONSIDERATIONS CONCERNING LIABILITY INSURANCE Liability insurance premiums typically are based on a business sales and payroll estimates provided prior to policy inception. At the end of the policy term, your business may be audited to ensure that the proper premium was charged. If the actual amounts turn out to be higher after the policy has been issued, you may be required to pay an additional premium. Also, if the amounts are less than estimated, you may be eligible for a refund. Other factors that influence the amount of your liability insurance premium include the type of business you have and the types of risk generally associated with such a business. For example, a toy manufacturer may pay $3 per $1,000 of sales. Thus, on $10 million of sales, the premium would be $30,000. A company that manufactures a less risky product or engages in a less risky business, such as a florist, may pay $1.50 per $1,000 of sales, or $15,000. Insurance companies evaluate a business liability risk based on several factors, including: the number of claims filed within an industry or probability of a claim for a similar type of company; the financial stability and longevity of a business; state laws; business products and/or operation; and the business approach to handling and preventing potential risks. If you have solid, documented safety practices and procedures in place, it could result in a lower premium and policy discounts, because such practices lower the risk of claims. Let your insurance producer and insurance company know of any such practices and procedures. Maryland Insurance Administration

20 BUSINESS OWNERS POLICY: A PACKAGE SOLUTION Many small business owners purchase a business package policy (BOP). A BOP typically includes liability insurance, property insurance, business interruption/continuation insurance and crime coverage. A BOP packages various types of coverages into one policy, so, for small businesses, it is often a less costly option than purchasing several separate policies. Many insurers customize BOPs for specific types of businesses. You should be aware that a BOP does not cover claims of professional liability (claims arising from allegedly wrongful practice by professionals), auto insurance, workers compensation, health or disability insurance all of which require separate policies to be purchased. HOME-BASED BUSINESS INSURANCE Home-based businesses like all businesses should be properly insured to protect the business assets and its owners against certain risks. Often, home-based businesses are underinsured a fact the business owner usually discovers after an incident or loss occurs. Then the business owner learns that the insurance he/she has is inadequate or insufficient to address the type or amount of loss the business is facing. Talk to an insurance producer to be sure that you have the necessary coverages in place to protect yourself and your business against a loss or claim. TYPES OF INSURANCE TO CONSIDER Property and liability insurance is important to home-based businesses, because it protects against loss or damage to business property and equipment, such as computers. It also provides protection against claims due to accidents or injuries to customers, clients or others who may visit your home to conduct business. Many home-based business owners believe their homeowners or renters insurance policy is adequate to cover their home-based business. However, that coverage may not exist or may not be sufficient. For example, most homeowners insurance policies specifically exclude coverage for claims arising out of the business activities or limit the amount of coverage for damage or loss of business property to $2,500 in the home and $250 away from their home. These limits may be insufficient if a fire were to destroy your home office and all of its contents, including the business inventory. Thus, it 16 Maryland Insurance Administration

21 is important to purchase the proper type of policy, as well as sufficient amounts of coverage under the policy to protect yourself and your business. Meet with a producer to discuss your business and obtain advice as to the types of insurance policies you may want to consider purchasing. TIPS AND CONSIDERATIONS FOR REDUCING BUSINESS RISK As a small business owner, you can take steps to minimize risk in the workplace, thereby helping to lower your insurance premiums. Here are some tips that could benefit your business, employees, customers and clients: Install fire and security alarms. Plan and train employees for an emergency on the premises, such as fires and evacuations. Have employees keep wallets and other personal items in a secure place. Keep the business cash and other valuables in a safe. If employees work with machinery, provide goggles, gloves and other recommended safety gear to help prevent injuries. Keep office space in good physical condition. Maintain carpeting and railing on stairs. Make sure telephone and computer wiring is in good working condition and does not create any hazards. If your employees operate company cars, ensure they have clean driving records and proper training. TIPS AND CONSIDERATIONS FOR LOWERING PROPERTY AND LIABILITY INSURANCE COSTS Review all insurance policies each year, and note any changes that may affect your coverage costs. For example, your premiums could be impacted by the addition or reduction of employees, client product offerings or inventory; alterations to your building or equipment; or changed state regulations. Find out how plans differ to ensure you are purchasing the best policy for your particular business at a competitive price. Claim a tax deduction for your premiums on fire, casualty and burglary insurance. Avoid purchasing overlapping policies. Carefully read the terms to make sure you are not covered for the same item in two separate policies. This type of policy examination also helps you ensure that you are not missing crucial coverage in other areas. Maryland Insurance Administration

22 WORKERS COMPENSATION INSURANCE All Maryland employers are required to maintain workers compensation insurance policy for their employees. Failure to obtain or maintain a workers compensation insurance policy will expose your business to both civil and criminal liability. A workers compensation insurance policy protects a business and its owner(s) from claims by employees who experience a work-related injury, illness, or disease either sustained on business premises or due to business operations. This type of coverage is no-fault, meaning that if the injured employee s injury, illness or disease arose out of his or her employment, and it was accidental, then the injured employee will receive benefits regardless of fault. If however, an employee purposely injures himself (for example, by deliberately jumping off a roof), then the injury would not be covered even if the incident occurred during working hours and at the jobsite. Workers compensation insurance policies typically provide benefits to an injured employee for medical expenses, a portion of lost wages, rehabilitation costs and any permanent partial or permanent total disability the injured worker may sustain. In exchange for such compensation, the employee forfeits the right to sue the employer in court for any damages related to this injury. You will need to purchase a separate workers compensation policy to obtain this type of coverage. Check with the Workers Compensation Commission at or , or your producer to see what is required for your small business. If this is the first time you are purchasing workers compensation insurance, your premium will depend on your payroll, the types of jobs employees perform (classification) and the type of business or industry you are operating. After a few years, your premiums may be based on the actual experience of your company. Employers should be honest and exercise diligence in classifying individuals who perform work for their companies as employees. Under the Insurance Article, it is a fraudulent insurance act to knowingly or willfully make a false or fraudulent statement or representation in, or with reference to, an insurance application. An employer who misclassifies individuals who perform work for their companies may also be in violation of other state laws, including the Insurance Article, and may be subject to additional civil penalties and/or criminal prosecution under those laws. If you encounter any difficulty purchasing workers compensation insurance in the private market, Chesapeake Employers Insurance Company may be able to underwrite coverage for your business. Chesapeake Employers Insurance Company can be contacted at , or at 18 Maryland Insurance Administration

23 TIPS AND CONSIDERATIONS RELATED TO WORKERS COMPENSATION INSURANCE Take steps to minimize risk in the workplace, thereby lowering the chances of a worker getting injured. For example: If employees operate machinery, provide goggles, gloves and other recommended safety gear to help prevent accidents. Keep office space in good physical condition by maintaining carpeting and stair railings, and ensuring that telephone and computer wiring is in good working condition. The U.S. Department of Labor s Occupational Safety & Health Administration (OSHA) offers specific information by industry type and provides other helpful resources to small businesses on how to comply with safety requirements that can limit work injuries. To learn more about OSHA s guidance to small businesses, visit the OSHA website at Maryland Insurance Administration

24 OTHER TYPES OF COVERAGE TO CONSIDER FOR YOUR BUSINESS FLOOD INSURANCE If your business could be damaged by rising water, you should consider buying federal flood insurance, because property insurance policies generally do not cover damage caused by rising waters. Even if your building/business is not in a flood zone, it may be at risk for flooding. Flood insurance is an optional coverage offered through the federal government. It may be purchased by contacting your insurance producer. When deciding whether to purchase federal flood insurance, you should be aware of these important facts: There are two types of coverage available under the National Flood Insurance Program: (1) structural coverage for walls, floors, insulation, furnace and items that are attached permanently to the insured structure, and (2) contents coverage for the business personal property. These coverages do not come together automatically, but must be purchased separately. There is a 30-day waiting period for a new or modified flood insurance policy to become effective, unless the lender requires that flood insurance be purchased in connection with a mortgage loan. If the lender requires this coverage, then there is no waiting period. The standard flood insurance policy covers direct losses caused by a flood, less an insurance deductible (usually $1,000). You may buy a policy that covers flood damage to both the structure and contents, or a policy that covers damage to only one. A business may need only one type of coverage if, for example, it does not own the building in which it is located, and the lease agreement does not require it to insure the premises. By law, the maximum allowable commercial property limit for a small business is $500,000. To learn more about federal flood insurance, visit the National Flood Insurance Program s website at obtain a copy of the MIA s brochure An Insurance Preparedness Guide for Natural Disasters, available at or talk to your insurance producer. 20 Maryland Insurance Administration

25 EARTHQUAKE INSURANCE While most people associate earthquakes with California, Maryland has recorded 68 earthquakes since Since 1986, 45 have occurred, most of which have been in the Columbia area of Howard County. Others have struck areas of Baltimore City, Baltimore County, Cecil County, Harford County and Montgomery County. Business insurance policies do not cover damage from earthquakes. Instead, a business would need an earthquake insurance policy. Coverage is available either in the form of an endorsement or as a separate policy for small business owners. Deductibles for earthquake coverage are usually a percentage of the limit of liability, rather than a dollar amount. Unlike flood insurance, earthquake coverage is available from private insurance companies. SURETY BONDS A surety bond protects the party contracting for a particular service (the obligee) from a default on the contract by the service provider (the principal). For example, if the principal defaults by failing to fund a mortgage loan, the company issuing the surety bond will pay the obligee the amount owed under the contract. Then, the surety company can seek recourse against the principal for reimbursement of expenses incurred in performing the obligation; this is known as surety s right of exoneration. Depending upon the type of business, Maryland law may require your business, or one with which you contract, to obtain a surety bond. Often, various types of construction and home improvement or repair contractors are required to have surety bonds as a condition of holding a license. Mortgage lenders and insurance companies also are required by law to maintain surety bonds. Maryland Insurance Administration

26 INSURANCE FOR YOUR EMPLOYEES HEALTH INSURANCE FOR SMALL BUSINESSES Providing health insurance for employees by far the single most expensive benefit offered by employers is one of the greatest challenges many small businesses face today. As business owners know, health insurance is extremely important to most employees and is, therefore, a very powerful benefit in recruiting and retaining the best workers. Cost and availability of health insurance are the key issues. Employers have a number of options if they decide to offer employer-based health care coverage. One of the best ways to fully understand all of these options can be to meet with a trusted insurance advisor/broker. Insurance brokers authorized by the Maryland Health Benefit Exchange (MHBE) can assist small businesses with direct enrollment in qualified health plans certified by MHBE s Small Business Health Options Program (SHOP). These authorized brokers can also assist you in determining whether you are eligible for a tax credit, which is only available if you select a plan certified by SHOP. For more information on SHOP, go to the SHOP Direct Enrollment page at TIPS AND CONSIDERATIONS CONCERNING GROUP HEALTH INSURANCE The following are common terms used in describing health insurance, and the requirements that follow (i.e. Guaranteed Issue through Adjusted Community Rating) apply only to insurers and HMOs with respect to their participation in the small employer market: Guaranteed Issue This means all eligible employer groups who apply for health care coverage and that meet certain conditions are automatically accepted by the insurance carrier. No one can be excluded from or denied coverage due to a medical condition. Guaranteed Renewal This requires insurance carriers to renew all groups that continue to pay premiums. A group s coverage cannot be canceled because an employee or an employee s family member is sick. No medical underwriting is permitted. 22 Maryland Insurance Administration